One of the most insightful analysts of the welfare state is philosopher David Schmidtz. I especially like his take on income differences. (It’s from page 39 of his superb book that is a point-counterpoint discussion on the welfare state with Robert Goodin, entitled Social Welfare and Individual Responsibility, published in 1998.)
The gap between the incomes of the rich and the poor seems to have widened over the past thirty years. What does it mean? Does it mean some people’s incomes have always been high, other people’s will always be low, and the gap has widened in real terms? Or does it mean people who are young and poor now have better opportunities than young people had thirty years ago – people are earning more as they age than their counterparts earned thirty years ago, thus producing a gap between poor twenty-year-olds and rich fifty-year-olds that is larger now than it was thirty years ago?
This question is vital, yet it is seldom asked. If the correct answer is the first that Schmidtz mentions, then people concerned about income inequality have a salient fact upon which to hang their concern (as well as to hang their proposals for income redistribution). But if the correct answer is the second that Schmidtz mentions — and this is the one that Schmidtz himself believes to be correct — the matter is entirely different. Same fact, entirely different conclusion — for if the second answer is correct, the bulk of people in the lowest income quintile at any time are made better off by the growing gap. In this case, proposals to close this gap through tax, welfare, and regulatory policies will reduce the welfare of most people whose incomes are currently low.